The biggest development this past week was easily the outperformance of utilities relative to the broader market. Over the past 8 trading days, utilities have beaten the S&P 500 by more than 6.5% and the Russell 2000 by nearly 8%. On top of that, the outperformance has been nearly a straight line up for a week and a half. I don’t necessarily want to get over-excited by this since this sector has been so up and down for years and has been a significant laggard throughout 2023. The magnitude of the move, however, is very compelling. This is the type of violent move we often see right before a correction. I wish we were seeing a similar move in long-term Treasuries here. If utilities and Treasuries outperform sharply at the same time, I really think it could mark the beginning of a correction. For now, long-term yields are still elevated, which means the markets might or might not be buying into the Fed pause theory.
When the signals get published on Monday, both the utilities and lumber/gold signals will flip to risk-off. The latter signal is important because it will be the first time since May that it’s in this position. After a brief rally, lumber prices are at their lowest level since June. Gold has been volatile more than anything lately, but it’s beginning to tick higher again. Friday’s move where it was up nearly 1% at the open may be due to options expiration more than anything, but it’s interesting to see nonetheless. I’m not sure exactly what’s happening here, but SOMETHING is happening. A lot of folks say don’t put too much weight into what’s happened over less than a two week period. While that’s true, utilities just don’t outperform by this much in such a short period of time for no reason.
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